Peanut Butter Denied Exemption Under Central Excise Laws, Ruled Similar to Margarine

CESTAT determines Peanut Butter as "similar edible preparation," excluding it from exemption notification, while revenue neutrality observed.

In a significant ruling, the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT), Regional Bench, has determined that Peanut Butter qualifies as a "similar edible preparation" to Margarine, thereby excluding it from the exemption notification under Central Excise Laws. The decision came in the case of M/s. Agro Tech Foods Ltd. versus Commissioner of Central Tax Rangareddy, concerning the classification and taxation of imported and repacked Peanut Butter.

The Tribunal, comprising Mr. A.K. Jyotishi (Member Technical) and Mr. Angad Prasad (Member Judicial), deliberated on whether Peanut Butter could be considered similar to Margarine under Notification No. 03/2006-CE, dated 01.03.2006. The ruling found that Peanut Butter and Margarine shared significant similarities in terms of fat content, origin, and usage, thus classifying Peanut Butter as a similar edible preparation and not exempt under the said notification.

The case revolved around M/s. Agro Tech Foods Ltd., which had availed Cenvat Credit amounting to Rs. 1,35,98,208/- on the import and re-packaging of Peanut Butter, which the Department contended was exempt. The appellants argued that their activity amounted to manufacture, requiring them to pay Central Excise duty on clearance. They emphasized the resemblance between Peanut Butter and Margarine, relying on previous judgments to assert that both products should be treated similarly under excise laws.

In its judgment, the Tribunal upheld the appellant's position on the similarity between Peanut Butter and Margarine, aligning with the interpretation of the term "similar" as expansive, not restrictive. The ruling also considered the principle of revenue neutrality, noting that since the final product was removed on the payment of excise duty, the Cenvat Credit availed need not be reversed.

Additionally, the Tribunal addressed the demand for irregular Cenvat Credit on written-off inputs. The demand was upheld for Rs. 4,51,157/- under Rule 3(5B) of the Cenvat Credit Rules, 2004, with penalties imposed accordingly.

The decision underscores the complex nature of classification under Central Excise Laws, emphasizing that definitions or classifications under one statute cannot be mechanically applied to another with a different purpose. The Tribunal referenced multiple precedents, including decisions by the Supreme Court and High Courts, to substantiate its findings.

The appeal was partially allowed, setting aside the demand and penalty related to Rs. 1,35,98,208/-, while upholding the demand and penalty concerning the irregular Cenvat Credit on written-off inputs.

Bottom Line:

Interpretation of exemption notification regarding "similar edible preparation" under Central Excise Laws - Peanut Butter held as similar to Margarine, not exempted under the notification.

Statutory provision(s): Central Excise Laws, Notification No. 03/2006-CE, Rule 3(5B) of Cenvat Credit Rules, 2004, Section 11AC.

M/s. Agro Tech Foods Ltd. v. Commissioner of Central Tax Rangareddy, (CESTAT)(Regional Bench) : Law Finder Doc Id # 2812480